Blackstone’s NAV REIT charges 125 basis points on equity and takes 12.5 percent of the total return once it exceeds a 5 percent hurdle rate. Most of the new players are keeping equity at 40 percent to 50 percent of total capital to quash fears of excess leverage.
However, Blackstone is using more debt and generating impressive double-digit returns. Its website says BREIT has a 57 percent leverage ratio that would be higher “if debt on our securities portfolio is taken into account.”
Blackstone became the largest owner of U.S. real estate after the Great Recession. BREIT, with 272 properties and $7.2 billion in total asset value, represents only a fraction of the real estate it controls. “They’re Blackstone, they have an excellent record in real estate and they can do it,” said one rival, referring to their leverage strategy.
Nuveen’s new NAV REIT is charging 125 basis points on equity and zero incentive fee. “That’s a pretty good deal; it’s hard to beat,” Gannon said.
These firms also are likely to differentiate their investment products by employing disparate strategies in various areas of real estate. Nuveen's web site says it is targeting big, winning global cities where properties have been white hot. Other firms reportedly are targeting mostly secondary markets where they see more value and potential upside.
Starwood plans to invest in both the U.S. and Europe and one source said it is likely to target select-service hotels, multi-family and office/industrial properties. Griffin's properties tend to be concentrated in the industrial, office and manufacturing markets and its net leases generally have built-in increases to provide a degree of inflation protection.
The shift to fee-based accounts also is driving the popularity of NAV REITs. “It is preferable to charge a fee on a security that has daily pricing as opposed to one that is valued once a year,” said Mark Goldberg, president of Griffin Capital Securities.
Moreover, advisors and brokers rebalancing clients’ portfolios need to be able price all the various assets a client owns to maintain their asset allocation weights, he added. Griffin converted their Essential Asset REIT 2, originally introduced as a lifecycle REIT valued annually, into an NAV REIT last year. Griffin was the number three fundraiser in the combined lifecycle and NAV REIT space in 2017, according to data compiled by Stanger.
So far, NAV REITs are largely being sold through wirehouses and, to a lesser degree, RIA firms. Sources said Blackstone reportedly is receiving some $5 million to $10 million tickets from large RIA firms that are buying their REIT via institutional shares.
Independent broker-dealers (IBDs) have been slower to embrace NAV REITs. Many IBDs ran into compliance issues and hefty fines with old non-traded REITs.